Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015

Lord Campbell-Savours Excerpts

Monday 26th October 2015 Lords Chamber

Tax credits will remain an important part of our support for those on the lowest incomes. Five out of 10 families with children will still be eligible to receive them and we will still be spending the same amount on tax credits in real terms as the last Labour Government did in 2007-08. But the SI before us today will change their operation in several respects. First, it will reduce the threshold at which working tax credits begin to be withdrawn from £6,420 to £3,850. As we do so, we will protect those on the very lowest incomes, while continuing to bring the overall Bill down.

[Lord Campbell-Savours (Lab)]

My Lords, I ask the noble Baroness to answer my question directly, and not give me a tangential answer. When the Prime Minister said at the last general election that an incoming Conservative Government would not cut tax credits—child tax credits—was he telling the truth or was he deliberately misleading the British people? Let me have a direct answer to my question.

[Baroness Stowell of Beeston]

My Lords, we were very clear in the general election and in our manifesto that we would be introducing welfare savings of £12 billion and that these would be directed at working-age benefits. What we also did at the same time was promise a package of measures to support working families—a new settlement for the people of this country, so that they would continue to be better off in work and would continue to prosper. That is what we were very clear about in the general election campaign. That is what we were elected to deliver for the people of this country.

Secondly, the SI before us will increase the taper rate from 41% to 48%. This will mean that the rate at which tax credits are withdrawn will increase, but we will do so in a measured way with a gradual taper, which will still ensure that those on tax credits who work more will always take more pay home. Finally, it will reduce the income rise disregard, the in-year increase to an individual’s pay that can take place before their tax credit reward is recalculated, from £5,000 to £2,500—bringing it to a 10th of the rate it stood at when we came to power in 2010.

A sustainable economy which reduces inequality and provides opportunity for all means making choices. There are no easy options, but what we try to do is carefully balance spending and taxation decisions so that the richest pay the most towards services that are so vital to everyone, and the climate is right for everyone to seize opportunities to get on and to be successful. The Government’s job is to manage that in the fairest way while delivering the most important thing of all for working people: economic security and sound public finances.

The Government believe that as part of the overall package of measures that support working people, these changes to tax credits are right. If we want people to earn more and to keep more of their own money, we simply cannot keep recycling their money through a system that subsidises low pay. That is the Government’s case for these changes. But with the amendments we are due to consider, there are broader questions at stake, too, about our role in scrutinising secondary legislation and about the financial primacy of the other place.

I know that Members of this House on all Benches take their responsibilities very seriously and are committed to ensuring that the House fulfils its proper role, so let me be very clear. We as a Government do not support any of the amendments tabled to the Motion in my name, but I am also clear that the approach the right reverend Prelate takes in his amendment, by inviting the House to put on the record its concerns about our policy and calling on the Government to address them without challenging the clear and unequivocal decision made in the other place, is entirely in line with the long-standing traditions of your Lordships’ House.

The other three amendments take us into quite different and uncharted territory. All three, in the names of the noble Baronesses, Lady Manzoor, Lady Meacher and Lady Hollis, if agreed to, would mean that this House has withheld its approval of the statutory instrument. That would stand in direct contrast to the elected House of Commons, which has not only approved the instrument but reaffirmed its view on Division only last week. It would have the practical effect of preventing the implementation of a policy that will deliver £4.4 billion of savings to the Exchequer next year—a central plank of the Government’s fiscal policy as well as its welfare policy. It is a step that would challenge the primacy of the other place on financial matters.

I have been to see the Chancellor this morning at No. 11, and I can confirm that he will listen very carefully were the House to express its concern in the way that it is precedented for us to do so, and that is on the right reverend Prelate’s amendment. But this House will be able to express a view on that amendment only if the other three amendments on the Order Paper are rejected or withdrawn.

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[Lord Lawson of Blaby]

The point is that this is a budgetary matter and budgetary matters are the prerogative of the elected House. That is the most important constitutional principle. This was designed to reduce the budget deficit, which everybody on all sides agrees has to be eliminated, by something like £4.5 billion. It is quite clear that this is the Chancellor of the Exchequer’s measure, in effect, whosever name may be on the statutory instrument. That is the constitutional position. I said I would be brief, so I will not elaborate, but that is clear.

On the other hand, I also said I am torn, because I believe that there are aspects of this measure which need to be reconsidered and, indeed, changed. The right honourable George Osborne, the Chancellor of the Exchequer, made it clear that he was going to get a lot of his savings, probably the greater part, from the welfare budget, and tax credit, which has ballooned enormously in recent years, is a large part of the welfare budget. I think that is absolutely fair, but the question is the particular incidence of this package in the regulations. What concerns me is not that there are high implicit marginal rates of tax—which are transient, incidentally. That is the case with all means-tested benefits and it is absurd to say that means-tested benefits can never be reduced. Nevertheless the tax credits system—the in-work benefits—rise surprisingly high up the income scale, but here the great harm, or a great deal of the harm, is at the lowest end. That is what needs to be looked at again; that is what concerns me. It is perfectly possible to tweak it to take more from the upper end of the tax credit scale and less from the lower end.

I heard my noble friend the Leader of the House say that the Chancellor would listen to this debate. I would have been surprised if she had said that the Chancellor would not listen to this debate. Of course he will listen to this debate, but it is not just listening that is required. Change is required. I very much hope that my noble friend Lord Howe, when he winds up, will indicate that there will be change, though he cannot indicate what, but I must say that my present intention is to support the amendment in the name of the right reverend Prelate the Bishop of Portsmouth.

[Lord Campbell-Savours]

I hope that the Chancellor of the Exchequer listens very carefully to the contribution of the former Chancellor of the Exchequer the noble Lord, Lord Lawson of Blaby, because his support for what appears to be the Frank Field amendment should be taken seriously. The Leader can call on all the constitutional arguments she can muster in support of the Government, as indeed can the noble and learned Lord, Lord Mackay of Clashfern, on the issue of financial privilege, but all those arguments pale into insignificance when compared with the greater argument that the general public, millions of people outside this House, are considering today—that being statements given during the course of the general election, solemn undertakings given by Cabinet Ministers to the British people, on what their attitudes would be to tax credits.

Mr Gove gave the undertaking that there would be no cut in tax credits, which he was unable to substantiate by way of any agreement, but that is what he said on television, in an interview. Mr Cameron deliberately misled the British public, who would regard what he said now as a lie to win a general election. The British public are fed up with politicians who tell lies on that scale. It exceeded the misleading of the public in the case of the Liberal Democrats over tuition fees; at least they did not know what was going to come after the election when they misled the public. In this case, Mr Cameron did know, and the Government set out to avoid revealing the facts by hiding behind the statement that they would have to make substantial cuts without going into details. Those lies trump all the constitutional niceties, whether they be financial privilege or the fatality of amendments, and it is on that basis that I intend to support the amendment tabled by my noble friend Lady Hollis this evening. The public cannot take this scale of lying.

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[Lord Fowler]

My Lords, I spent three months every year debating with the Treasury the proposals that it put forward to cut my budget. One counterargument I never used was that the specific cost-cutting measure was not in the party’s manifesto. Frankly, I had quite enough trouble getting the Treasury to recognise the measures that were in the manifesto. Every Government introduce measures not contained in the manifesto. The last thing I did was to introduce the dock labour scheme—there was not a word about that in the manifesto. Back in my old social security days, Barbara Castle, under pressure from the Treasury, altered the whole basis of measuring inflation at a cost and a saving of well over £1 billion.

The truth about reduction in benefit spending is that it is always going to be unpopular. I found that in Cabinet everyone was in favour of doing it in general but when it came to the specifics they always said, “Please, not that way”. Frankly, I think that the Conservative manifesto in 2015 spelled out what was intended with more clarity in this area than any manifesto I can remember on either side. The Government said in words that they would have to find £12 billion from welfare savings. That is a good deal more specific than any manifesto I had anything to do with myself and, indeed, any manifesto which ever came up on the other side.

[Lord Campbell-Savours (Lab)]

My Lords, in light of what the noble Lord just said, does he think that it was right for Mr Cameron to rule out cuts to tax credits at the time of the general election?

[Lord Fowler]

We have been round this particular point because the noble Lord has made it several times. More to the point, it has been considered now three times in the House of Commons and has been rejected. In fact, I think he was talking about considering child tax credits and not the whole ball game.

The manifesto also made it clear in words that pension upratings would be protected. In other words, that area of retirement would be ring-fenced. I do not think there was any great controversy about that. By ring-fencing pensioner benefits the Government narrowed the field very substantially from where the £12 billion cuts could come. It follows as night follows day. Not everyone will agree with that diagnosis. Indeed, my major reason for introducing family credit was my concern for low-income working families with children. Even then it was clear that pensioner earnings were improving and increasing and that was not being followed by the low-income families.

I do not think that anyone can have imagined how spending on tax credits was to escalate in the way that it did. Tax credit spending trebled in the 10 years up to 2010 and by the Budget of this year was estimated to be about £30 billion a year. That was a long way from the original aim. However, I accept that none of this was the fault of the families who are struggling to make ends meet, often in very difficult circumstances. I totally accept and agree with that. I therefore welcomed the assurance of the Leader of the House when she said that these matters would now be considered again. I hope that when they are we can find room to look particularly at families with children. That is a priority, and Frank Field has a Motion down on this. That argument is particularly strong. Whether the Government do this or not—and this is the point—is frankly a matter for the Chancellor of the Exchequer, who is answerable on this and other financial matters to the House of Commons and not to us. It is a common-sense position—